Tan Kin Lian's Blog: Critical illness

Friday, February 22, 2008

Critical illness

Dear Mr. Tan,
What is a fair premium to pay for critical illness insurance?

REPLY

The claim rate is less than 0.3% a year for people between 35 to 60 years. To insure $100,000, the pure cost should be $300. If you add the administrative cost, a fair premium should be $450 a year.

Many people have to pay more than $2,000 a year under a critical illness policy. This is too much, as compared to the true cost of the risk.

Although some of the premium is used as savings to accumulate a cash value, the return from this saving is quite poor. A large part of the saving is used to pay expenses of the insurance company, including the commission to the agent.

For a child or baby, the risk of suffering a critical illness is very much lower.

Read this FAQ:
http://www.tankinlian.com/faq/choice.html

13 comments:

Anonymous said...: Hi Mr Tan,

I have learnt a lot from your blog. Thank you for your sharings.

I am under the impression that one would need critical illness cover when we are older rather than younger. But if we buy the critical illness cover when we are older, wouldn't it be very expensive?

Wouldn't it be better to buy it when we are younger to lock in the lower premium?; February 22, 2008 9:19 AM
Anonymous said...: Imagine how much you would have saved if you buy later. Invest the money regularly and you will have quite substantial. Take up when you need it.There is no need to lock in the premium becuase by the time you are old you are about to cancel it. If you buy term, you can lock the premium if you wish, the loss is little compared to how much you gained from the saved money invested.; February 22, 2008 3:01 PM
Anonymous said...: Dear Mr Tan,
I am not sure if having a whole life critical illness coverage is a must because falling sick in old age is almost certain. That is when the payout from this plan becomes useful besides an as-charged H&S shield plan.

Term Critical Illness plan covers till say age 65, but usually the illness start around that age or even later. That is the time when I need to coverage most.

starlight.; February 22, 2008 9:31 PM
Anonymous said...: After 65 you have the option to continue to 80 years. But will you renew? Do you have any idea how much you are paying for your mortality charge, from your whole life or from the term? After 65, you better save your money and self insure and let your H&S take care . Critical illness may happen or may not. Do you know that to get critical illness after 65 the chance is like getting a first prize 4-D? Do you want to waste your money because you fear critical illness? This is the time
when health,diet, excercise should be your insurance and not wholelife. Surely you don't want to make a claim. You want to claim a windfall of a few $100ks? For what?
or do you need a few $100Ks for treatment? Can't H&S take care?
You seem to have been sold this idea that wholelife can prevent illness.; February 22, 2008 11:59 PM
Priyadi said...: people seem to be forgetting that insurance is actually negative-sum game. there's higher probability that you will end up paying more than you will ever receive. if you insure against an event that has higher chance of occurring, that probability is even higher. and if you insure against an event that is certain to happen, it is almost certain that you will end up paying more than you will receive in the end.

this might be counterintuitive to some people. but if an event has higher chance of occuring, the less need there is to insure against it. it is better to keep the money: there is higher probability that you will spend less.; February 23, 2008 11:54 AM
Anonymous said...: Only death and tax are certain in this world. If death is due to accidents, then it is "short and sweet". If is due to illness, then it would be prolonged suffering, treatment and financial drainage. I don't have the info. But falling sick in older age is of higher chance than young. Else why insurers charge higher premium for old people than young?

starlight; February 23, 2008 10:29 PM
Anonymous said...: Falling sick at older ages is many times higher than when younger. And the average length of stay is also correspondingly higher. This is based on my actuarial experience studies with medical claims. Hence, do not get a health insurance that is non-guaranteed renewable. It is not worth it.

An example is the popular AIA PinkofHealth. It is not guaranteed renewable. Why is it so popular. A hint, ask an AIA agent for the commission and renewal commission. You will be shocked.

blackbox; February 23, 2008 11:19 PM
Anonymous said...: Tax is no longer a certainty. Poverty is certainty if you continue to trust
those insurance salesmen. Insurance agents ensure you stay poor for the rest of your life becuase they do nothing except to sell you something to enrich themselves.; February 23, 2008 11:34 PM
Anonymous said...: Since falling sick at old age is many times higher than when young, what is point of having term CI plan where coverage stops at say age 65? You may say that an as-charged H&S plan would do, but is this really sufficient?

starlight; February 26, 2008 8:16 AM
Anonymous said...: As charged H&S is sufficeint. You forgot what CI is for.... To provide treatment and income protection. So H&S is enough to take care of the treatment. Yes falling sick is higher at this age but insurance cannot stop it. CI is critical illness, dread desease and not ordinary illness. H&S can take care of the BIG BILL.; February 27, 2008 11:30 AM
Anonymous said...: starlight,

The point is to take CI cover when you are in your 20s and start working and then stop it in 30 years time. In the meantime, you are investing in a separate account which can be as little as $100 a month in a low expense fund. So when your cover ends, you can use this as a self-made CI cover.

This is better than a CI whole life as CI is based on a very limited definition. We have often heard 1 in 4 will get cancer. This is misleading. You may want to read up medical statistics from Singapore Cancer Registry. The incidence rate for all cancers is around 250 per 100,000.

What a CI whole life does is really the same thing. Your premiums are invested in a participating fund. This fund is invested in a mix of equities and bonds. Come March 2008, we will all have greater fidelity to how the insurers invest our premiums with the new MAS regulation in place.

blackbox; February 27, 2008 10:07 PM
Anonymous said...: Blackbox,
Thanks a lot for sharing. Maybe I am paranoid with cancer, stroke, heart attack etc, so I think that a WL CI plan is better since it would provide some coverage at any time of my life.

starlight; February 29, 2008 10:44 AM
Anonymous said...: Fact of the matter is some ppl always see themselves as immortal.

The incidence rate for all cancers is around 250 per 100,000.

But don't end up be in the 250 than in the other 100,000.

You never know which side of the scale will you fall onto.; March 05, 2008 9:41 PM